ETSO Comments on the draft Congestion Management Guidelines ETSO Comments on the draft Congestion Management Guidelines Pierre Bornard Chairman of ETSO Steering Committee ERGEG’s Public Hearing Brussels, 30 June 2005

ERGEG's Public Hearing - Brussels, 30 June 2005 Europe, 30 June 2005 … and some promising projects discussed during the 7 regional Mini-Fora on CM Access limitation Priority list Pro-rata Explicit Auctions Market Splitting Specific No allocation mechanism Legal framework different from EU ERGEG's Public Hearing - Brussels, 30 June 2005

ERGEG's Public Hearing - Brussels, 30 June 2005 Preliminary Remarks The draft Guidelines are now globally in line with the ETSO Vision on Congestion Management ETSO believes that their adoption is a positive step towards the development of the IEM ETSO supports the proposed timetable, including adoption end of 2005 ETSO is supports a more in-depth advisory collaboration with the EC and ERGEG/CEER TSOs should be seen as key market facilitators, especially during the consultation process ERGEG's Public Hearing - Brussels, 30 June 2005

ERGEG's Public Hearing - Brussels, 30 June 2005 The 2002 ETSO Vision on CM “Fulfilling the market requirements without other pre-requisite than secure operation” ETSO’s goal is to implement the network access arrangements that the market needs to enable effective competition across Europe while complying with security standards to optimise the use of the network in a pan-European perspective This goal will be achieved by providing efficient market-based mechanisms to manage congestion between regions, under complex grid constraints while allowing the co-existence and evolution of different market structures within regions “Flow-based Market Coupling”: one concrete proposal for implementation of the ETSO Vision ERGEG's Public Hearing - Brussels, 30 June 2005

Three Main Comments from ETSO Still some comments related to misinterpretation of physics or technical issues, always handled by TSOs Rights and obligations of market participants and of TSOs should be balanced and designed for an overall optimum Sustainability and confidence in the market: transparency and market monitoring ERGEG's Public Hearing - Brussels, 30 June 2005

Cross-Border Electricity Exchanges in Large AC Power Systems 1/2 Large AC interconnected Power Systems: the physical and the commercial dimensions Physical dimension (operator’s view) Balancing the system through control areas Controlling the flows complying with security rules Commercial dimension (trader’s view) Power system considered as a market place with maximum trading flexibility for “paper” tradable products Two related dimensions The final settlement of the trade will find a physical translation in generation schedules and load levels Control areas become hubs and the exchanges between hubs are subject to limits ERGEG's Public Hearing - Brussels, 30 June 2005

Cross-Border Electricity Exchanges in Large AC Power Systems 2/2 No unique relationship between physical flows and commercial exchanges For a given set of imbalances between control areas there are infinite possible generation and load schedules Symmetrically, a given physical flow pattern can be the result of different commercial exchanges TSOs to handle the physics providing a smooth playing field to the market TSOs at the heart of the conversion of trading “paper” positions into physical electricity flows ERGEG's Public Hearing - Brussels, 30 June 2005

Misinterpretation of Technical Issues 1/3 Points 1.3 / 1.6 / 1.7 “...Co-ordination shall take into account the forecasted physical flows or global grid situations” “...Co-ordination shall take into account the best estimate for forecasted physical flows or global grid situations” too high expectations in perfect forecasts of physical flows for "optimal" capacity calculations seem misleading, since the final generation and load patterns are the key elements that determine the actual physical flows ERGEG's Public Hearing - Brussels, 30 June 2005

Misinterpretation of Technical Issues 2/3 Point 2.6 “In cases where nomination for an expected flow between two countries (TSOs) significantly affects conditions in the third country (TSO), congestion management methods ….” “In cases where commercial exchanges between two countries (TSOs) are expected to significantly affect the physical flow conditions in a third country (TSO), congestion management methods...” ERGEG's Public Hearing - Brussels, 30 June 2005

Misinterpretation of Technical Issues 3/3 Point 4.1 (4, footnote) “ (…) may still be available to be allocated for three reasons: a) (…) ; b) capacity rights may not be nominated; c) nominated capacity rights might create opposite flows in the same transmission line.” “(…) may still be available to be allocated for three reasons: a) (…); b) unused long and medium term transmission rights; c) firmly nominated transmission rights that have been globally netted thus creating additional but non firm capacity in their opposite direction.” ERGEG's Public Hearing - Brussels, 30 June 2005

D-1 Nominations of “options” Art. 6.2 of Regulation 1228/2003 “Compensations if curtailment of capacity rights” & “Firmness of transactions” Annual / Monthly Capacity Rights D-1 Nominations of “options” XB Transactions Year or month ahead Day-ahead Time “Transaction curtailment procedures shall only be used in emergency situations, where the TSO must act in an expeditious manner and redispatching or countertrading is not possible.” “Except in the case of “force majeure”, market participants who have been allocated capacity shall be compensated for any curtailment.” ERGEG's Public Hearing - Brussels, 30 June 2005

Balancing Rights and Obligations 1/5 Point 1.12 “...Where market participants fail to use the capacity that they have committed to use, they shall be exposed to a penalty. If a TSO does not fulfil the obligation, it will be financially liable for the consequences.” “... Where market participants fail to use the capacity that they have committed to use, they shall be exposed to the loss of rights to such interconnector capacity, likewise, if a TSO does not fulfil the obligation, it will be liable to compensate the market participant for the loss of interconnector capacity rights, however, in all cases limited the value of the capacity right. No consequential losses shall be taken into account for this purpose.” ERGEG's Public Hearing - Brussels, 30 June 2005

Balancing Rights and Obligations 2/5 Point 2.5 (10) “Establishing non-cost reflective reserve prices in capacity allocation methods shall not be allowed….” “Other than in the case of merchant lines, establishing non-cost reflective reserve prices in capacity allocation methods shall not be allowed...” ERGEG's Public Hearing - Brussels, 30 June 2005

Balancing Rights and Obligations 3/5 Point 3.6 “… When there is intermittent congestion, (…), or should deliver an allocation free of charge in case there is no actual congestion.” “… When there is intermittent congestion, restrictions on network access shall apply only for the time when the congestion exists, via a market based mechanism where requests for transmission access do exceed the available capacities.” ERGEG's Public Hearing - Brussels, 30 June 2005

Balancing Rights and Obligations 4/5 Point 4.1 (2) “The access rights of long- and medium term allocations shall be firm transmission rights, with no obligation to be used. It shall be subject to the use-it-or-lose-it rule at the time of nomination.” “The access rights of long- and medium term allocations shall be transmission capacity rights, subject to the use-it-or-lose-it principle at the time of nomination.” ERGEG's Public Hearing - Brussels, 30 June 2005

Balancing Rights and Obligations 5/5 Point 4.1 (4) “Nomination of transmission rights shall take place sufficiently in advance (…). This nominated capacity shall be taken into account for netting in order to use the interconnection to its maximum of capacity” “Firm nominations of transmission rights shall take place sufficiently in advance (…). Firm nominations of transmission rights in opposite directions shall be netted in order to efficiently use the interconnection.” ERGEG's Public Hearing - Brussels, 30 June 2005

ERGEG's Public Hearing - Brussels, 30 June 2005 Transparency 1/2 Point 5.7 “The demand forecast information shall also be published by the TSO according to the timeframes defined in 5.2. and 5.3” “The demand forecast information shall also be published by the TSO according to the timeframes defined in 5.2. and 5.3 as far as such timeframes are relevant for network availability and use.” ERGEG's Public Hearing - Brussels, 30 June 2005

ERGEG's Public Hearing - Brussels, 30 June 2005 Transparency 2/2 Point 5.8 “The TSO shall publish also the relevant information on generation according to the timeframes defined in 5.2. and 5.3.” “Where required by the National regulatory authorities, the TSO shall publish also the relevant information on generation according to the timeframes defined in 5.2. and 5.3, as far as the provision of such data is compliant with commercial confidentiality.” ERGEG's Public Hearing - Brussels, 30 June 2005

ERGEG's Public Hearing - Brussels, 30 June 2005 Conclusions ETSO is globally in line with the draft Guidelines on congestion management their adoption in 2005 will be positive for the IEM TSOs should be seen as key market facilitators involved in market design TSOs are not market participants, they ensure that the changes in the Regulations can be effectively implemented on a practical basis At this stage, the question of inter-TSO cooperation is second to the harmonisation of legal and regulatory frameworks ERGEG's Public Hearing - Brussels, 30 June 2005

Recent ETSO Publications on CM and XB Trade Issues Cross-Border Electricity Exchanges in Meshed AC Power Systems, April 2004 “FMC-Flow-based Market Coupling” a Joint ETSO-EuroPEX Proposal for Cross-Border Congestion Management and Integration of Electricity Markets in Europe, September 2004 An Overview of Current Cross-Border Congestion Management Methods in Europe, September 2004 A Review of the Monitoring of Market Power, Cambridge, December 2004 An Evaluation of Preventive Countertrade, April 2005 Towards a Sustainable European Market Design; TSOs and the Monitoring of Market Power, June 2005 www.etso-net.org ERGEG's Public Hearing - Brussels, 30 June 2005